Nintendo Actually Raises Their Full Year Financial Forecast

Nintendo's stock is currently trading down 3.5% in Germany on the news that the company raised their full year sales and profit forecast for the fiscal year ending in March 31, 2017. Pokemon Go's continued popularity drove strong performance from Pokemon Sun and Moon (which sold 14.69 million units). The company also signaled favorable sales of Nintendo Switch preorders. “You can tell customers have huge expectations based on how Switch reservations are doing,” said Nintendo President Kimishima. “We want to increase production as much as we can.”

Pokémon Go's popularity led to increased sales of software in the Pokémon series and drove Nintendo 3DS family hardware sales growth. Nintendo sold 6.45 million 3DS units worldwide during the quarter (10% increase on a year-on-year basis), while Nintendo 3DS software sales were 46.78 million units (20% increase on a year-on-year basis). This is very impressive for a system that turns 6 years old in a few months.

Nintendo President Kimishima said in a briefing that the Super Mario Run has been downloaded 78 million times on iOS, and that more than 5 percent of players are buying the $10 full version. This implies that the company has made somewhere around $40 million in sales from Mario's first smartphone app before factoring in Apple's cut. Pokemon Go was in the Top 10 Highest Grossing Apps on the App Store for all but one day of the holiday quarter and continues to perform well for the company. President Kimishima has been on record saying that Nintendo plans to release 3 smartphone games per year with Fire Emblem coming out on February 2.

One major negative this quarter was the lower than expected operating income. Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co. noted to Bloomberg that operating profit for the quarter came in at 32.3 billion yen, slightly below the average projection. “The operating profit being weaker than expected definitely leaves a negative impression. But if that is because of the Animal Crossing delay, then it simply means that game’s earnings will hit during the next fiscal year and isn’t too big of a worry.”

Nintendo increased their guidance for full year ordinary income as well as net income driven by increasingly positive sales expectations and favorable foreign currency exchange rates. The company's new assumed exchange rates after the third quarter and at the end of the fiscal year have been revised from 100 yen to 110 yen per U.S. dollar and from 115 yen to 120 yen per euro. Nintendo generates nearly 3/4 of its revenue from overseas, so Yen weakness could continue to be a tailwind for them. This does not fully explain the material increase to guidance, and it seems like the company may be trying to sell more than the 2 million Nintendo Switch consoles that they had originally planned to sell during the 4th quarter of this fiscal year ending March 31, 2017.

Nintendo also increased their expected dividend payout for the fiscal year. They failed to pay a dividend to shareholders at the end of the 2nd quarter of fiscal 2017, but it appears that shareholders will be rewarded for their patience as the company expects to pay out 80% more in dividends than they expected in October of 2016.

Nintendo did better than expected on most metrics this quarter, but the weakness in operating income seems to be the thing that bears are clinging onto. Wii U didn't really have a major title that came out during the quarter and 3DS could only carry the company so far. Wii U has sold 13.5 million units life-to-date and there have been over 65 million units sold within the 3DS family. Analysts expect Nintendo Switch to sell nearly 13 million units in its first 18 months and Nintendo President Kimishima has already said that the system will not be sold at a loss.

Shareholders seem to be unimpressed with Nintendo's results as the stock is trading down 3.5% in Germany as I file this report. American traders should watch the $24.44 level on NTDOY for a break of support. I will be looking for any sign of strength in the coming weeks to add to my position in the company ahead of the launch of Nintendo Switch.

Full Disclosure:

At the time of this article, Asif A. Khan, his family members, and his company Virtue LLC had the following positions:

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.